Consumer lifestyle is fast developing as the hottest-market-segment-to-be in India. And it doesn’t take rocket science to figure out why. Rising income levels, flash flood of consumerism and increasing brand awareness are all pulling together to create a self-sustaining market for lifestyle product and services. The innerwear market is one such sub-segment which is coming out of the shell. So when a private equity-backed firm Lovable Lingerie Ltd knocked on the doors of the capital market, there was a virtual stampede to get a piece of the pie.

The small size public issue was subscribed over 35 times in March this year. Indeed, it was not just a flash in the pan. The stock has rocketed over the last four months and now trades at Rs 405 a share or just about twice the public issue price. Lovable Lingerie is now valued six times more than Maxwell Industries which is twice the size and boasts the legacy VIP brand of innerwear. So, what’s clicked for the relatively new kid on the block?

It appears that investors are sniffing the same opportunity that Sequoia Capital spotted early this year when it invested Rs 20 crore in a pre-IPO transaction. “Lovable is an FMCG-type company in the apparel space,” said VT Bharadwaj of Sequoia Capital. According to him Sequoia is excited about branded, consumer-facing business – given the potential for growth and the ability to build a large business with a small amount of capital.

“Lovable Lingerie is a fantastic example of such a business – where consumer pull and loyalty have been created to build a business that has many years of secular growth ahead of it,” said Bharadwaj.

To be fair, Lovable is not the only player in town which has caught the fancy of a private equity firm. Bigger rival Page Industries, which has the India licence for global brand Jockey, has landed Nalanda Capital as one of its shareholders.

VCCircle dived deep to look at the growth opportunities in the domestic innerwear market, the competitive landscape, strategy of some top players and where Lovable Lingerie, in particular, fits in the bigger game.

The Industry

The overall innerwear market (excluding kids) in India was worth Rs 11,913 crore ($2.6 billion) in CY2009, according to a report by credit rating and research firm CARE. The market has grown at a CAGR of 15.8 per cent during 2006-09. But this market is highly fragmented with almost two-thirds of the business controlled by the unbranded and unorganised local players, which is more of a volume-led commoditised business.

In volume terms, men’s and women’s innerwear markets are almost equal in size. But in value terms, the women’s lingerie segment constitutes 66 per cent share of the total market. This is due to higher-average selling price, as compared to the men’s innerwear market.

What’s more, growth in women’s lingerie market was also a notch higher. Over the last decade, lingerie has evolved from an optional part of the wardrobe to essential clothing. In value terms, it constituted 5.1 per cent of the total Indian apparel market and 15.8 per cent of the overall women’s apparel market during 2009.

In volume terms, the lingerie industry grew at a rate of 9.4 per cent during 2006-09, constituting 9.4 per cent of the overall apparel market and 31.9 per cent of the women’s apparel market.

The lingerie market grew at a faster pace in terms of value, as compared to volumes, during 2006-2009 – signifying a jump in the average selling price, according to CARE. It has added that the market will continue to grow at a robust rate of 18-19 per cent over the next five years.

The Competitive Landscape & Valuations

Although the innerwear market in India is highly fragmented, key Indian brands and a bunch of international brands in partnerships with local players are fighting it out for a piece of action.

The biggest of them all is Bangalore-based Page Industries Ltd, the licensee of Jockey International Inc. (USA) for manufacturing and distribution of the Jockey brand of innerwear/leisurewear for both men and women in India, Sri Lanka, Bangladesh and Nepal.

The firm has recently struck another deal where it has entered into a licensing agreement with Speedo International Ltd for the manufacturing and distribution of Speedo brand swimwear, water shorts, apparel, equipment and footwear. It is, by far, the largest player, with revenues of around Rs 500 crore.

Maxwell Industries largely concentrates on men’s innerwear segment. The company markets brands like VIP Innerwear, Frenchie, Frenchie X and VIP Feelings, and all their sub-brands. But earnings has been an issue for the firm which reported revenues of Rs 229.32 crore for FY11, with net profit of 1.63 crore.

Besides these two and Lovable that has a bunch of brands such as Lovable, Daisy Dee and College Style, there are a number of other international brands which are now available in India, thanks to the growing might of organised retail chains. So, there is tough competition ahead and this is especially true for Lovable, as many of the global brands operate in the lingerie segment and that, too, in the premium segment. That poses a challenge for Lovable as it tries to scale up its presence in the higher value product segment.

In terms of valuations, Lovable is now trading 34 times its trailing EBITDA, which looks expensive compared to Maxwell, which is trading six times while Page Industries is trading 21 times EBITDA. However, Lovable has relatively better net margins.

The Lovable Strategy

Lovable Lingerie has manufacturing facilities in Bengaluru and Roorkee (Uttarakhand). The firm will use the issue proceeds to set up another manufacturing unit to create additional capacity at Bangalore, besides spending on its joint venture Lovable Lifestyles Pvt Ltd that will market, manufacture, distribute and direct retail in the super premium lingerie segment. The company will also spend the monies on brand-building and setting up exclusive brand outlets.

Lovable has also acquired quite a few premium brands from others, including Daisy Dee from Maxwell Industries and College Style from Levitus Trading Ltd, Hong Kong. While the Daisy Dee line caters to the semi-premium market in India, College Style meets the requirements of the young consumer segment. Also, the focus on women’s innerwear gives the company higher margins and a better growth opportunity. And a multi-brand portfolio allows the firm to cater to different segments with segregated offerings.

Lovable is now keen to diversify and enter other niche segments. Its new product range will feature men’s innerwear, which will pitch it directly against Page Industries. However, its success will largely depend on how it is able to execute the diversification plan while retaining its existing market share in the women’s innerwear segment.

Its future strategy also revolves around strengthening the company’s brand presence by launching women’s innerwear in the super premium segment, extending the flagship Lovable brand into product segments like sleepwear and home wear, opening exclusive brand outlets and increasing product exports to countries like Sri Lanka, Bangladesh and the UAE.

The firm has grown its topline three times over the past five years and the net profit has shot up almost five times. This is one of the reasons why investors are bullish on the firm and its management, led by L Vinay Reddy.

Sequoia’s Bharadwaj believes that Lovable Lingerie is a possible category leader. “Reddy and his team have organically grown a large sales & distribution network across the country. For example, the Daisy Dee product is available in more than 7,500 retail points (multi-brand outlets and department stores). And this network is sustainable and growing. The supply chain to support the operations ensures timely deliver, with very low inventories in the entire channel. These are wonderful strengths as new players cannot always afford to set up an efficient supply chain and thus enhance the market reach,” added Bharadwaj.

The lingerie industry in India has certainly created a niche for itself. But whether it can attract adequate funding from PE/VC firms and capital markets is still a matter of contention. The initial signs are quite encouraging though, and given the potentials galore, the lingerie market may soon sizzle in terms of investment, quality, growth and profitability.

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